Eurofins Scientific (ERF FP) France
Industrials
An Iron Blue score of 37/60 (+2 Y/Y) is top quartile (fertile ground for shorting). Red flags include expanded use of stripped out restructuring (incl. start-up costs & depreciation) expense, widened gap between PPE capex and depreciation, and movements in bad debtor & inventory provisions. Against waning FCF (post 2020-21 PCR test boost), ERF's interest burden is increasing (6.75% €600m hybrid priced in Jan, implied cost = 17% of 2022 FCF). Additional governance red flags include deepened corporate structure complexity, audit fee up to 2-3x peers and CEO’s brother shifted from executive to non-executive director. A new 2022 risk factor was added about risk of accounting error / fraud.
Edition: 156
- 17 March, 2023
Eurofins Scientific (ERF FP) France
Industrials
Quickly returning to its pre-Covid distress - according to Teun Teeuwisse, the key reason to be short pre-Covid was because ERF was an acquisition machine, whose acquisitions never actually added any value; the company failed to seriously generate cash and had a mounting debt position of >50x FCF. Additionally, Teun had doubts on transactions between the firm and its major shareholder’s, the family company of founder and CEO Gilles Martin. Now that Covid benefits are fading rapidly and with debt maturities getting closer Teun thinks this is a great time to re-short the stock.
Edition: 153
- 03 February, 2023